In a potentially serious boost to Armenia’s information technology (IT) sector, the government approved on Thursday profit tax breaks for local IT companies investing in innovation.
Gagik Khachatrian, head of the State Revenue Committee (SRC), said expenditures made on new software development and other innovative solutions will now be deducted from their taxable income. Speaking at a cabinet meeting chaired by Prime Minister Tigran Sarkisian, Khachatrian said IT firms will thus be able to pay less profit tax.
Armenian law sets a flat corporate income tax rate of 20 percent for all companies. None of them has enjoyed such tax privileges to date.
The Armenian government declared the development of the domestic IT industry a top economic priority a decade ago. The sector employing more than 5,000 people is dominated by Armenian subsidiaries of California-based software development companies. Recent years’ rapid spread of Internet service access in the country appears to have also contributed to its ongoing expansion.
IT experts cautiously welcomed the government measure. Karen Vartanian, chairman of an association of Armenian IT enterprises, suggested that it should encourage local software developers to design their own products instead of relying on outsourcing orders from Western hi-tech giants.
“This specifically concerns companies that attract a particular amount of money from somewhere and invest it in research and develop a new product,” Vartanian told RFE/RL’s Armenian service (Azatutyun.am). “I think it’s a very important solution.”
“We will see the impact of this decision more clearly in one or two years from now,” he said.
Armen Markosian, an IT industry executive, was less enthusiastic about the tax breaks. “This decision will not have a substantial impact because innovative software development was already moving forward well before it,” he said.
Steve Wozniak, the prominent co-founder of the U.S. Apple corporation, advised Armenia to invest in education and nurture creativity among young people when he visited Yerevan last November. “You have to be able to spot young people who will think for themselves and come up with good new ideas -- the real innovators,” Wozniak told RFE/RL’s Armenian service in an interview.